Markets got off to a strong start for the week, with growing hopes that coronavirus deaths were beginning to decline in parts of Europe. Markets carried that momentum into Tuesday morning, after China reported no coronavirus-related deaths for the first time, while Germany was seeing more recoveries than new cases and Italy stated it will end portions of its lockdown on May 4. In the U.S., daily virus increases appear to have peaked around 33,000 while the hospitalization rate in New York — the state with the most confirmed cases — has been reducing.
U.S. stocks ended the week on a strong note, continuing Wednesday’s gains, as the Federal Reserve announced an additional $2.3 trillion in aid to businesses and governments. The S&P 500 capped off a +12.1% weekly gain, its best such return in 45 years, while the Dow Jones industrial average rose +12.7% over the short four-day week. U.S. Treasury yields increased over the week, driven by the risk-on sentiment in equity markets and an increased supply of Treasuries.
The new Fed measures include an array of programs to help boost the economy hit by the coronavirus pandemic. The central bank said it would also buy investment-grade and junk bonds.
Equities in Europe rose over the week, the EURO STOXX 50 Index ended +8.6% higher. Germany’s Xetra DAX Index climbed more than +11%, France’s CAC 40 Index gained +7.62%, and Italy’s FTSE MIB was up around 5%. The UK’s FTSE 100 Index surged 7.89%.
Stocks in Japan recovered nearly the entire prior week’s losses through the close on Thursday. The Nikkei 225 Stock Average advanced +9.4% over the week.
On Wednesday China ended its lockdown of Wuhan, the original epicenter of the coronavirus outbreak. Travel hubs were reportedly extremely busy after an 11-week lockdown.
On Thursday all members of OPEC and its allies, known as OPEC+, agreed to a 10 million barrels per day production cut, except for Mexico. That fell far short of the expected demand decline of 35 million barrels per day in the wake of the coronavirus pandemic.
The month of April will likely see challenging global economic and earnings data with market volatility likely to remain elevated.
Market Moves of the Week:
President Cyril Ramaphosa extended the nationwide lockdown to curb the spread Covi-19 outbreak by two weeks on Thursday, acknowledging the need for a larger scale testing of the virus to get a full picture of the prevalence rate.
The initial 21-day stay-at-home order was due to end on April 16, but Ramaphosa said in a televised address to the nation that even as the measures show a level success, the country was at the beginning of a monumental struggle.
“Since the start of the lockdown, the average daily increase has been around 4%. While we recognise the need to expand testing to gain a better picture of the infection rate, this represents real progress,” Ramaphosa said.
“SA lockdown extension implies further downward revision to SA GDP in 2020,” said Kevin Lings, chief economist at Stanlib, adding that the extension also implied further tax revenue shortfall, larger government debt and more unemployment. “SA will have to consider external sources of financial support,” whose company currently expects the economy to contract by 5% in 2020.
The JSE closed firmer on Thursday, ahead of the long weekend, the JSE all share ended the week +7.65%. The rand regained almost all its losses in April after it reached a record low of R19.34/$ on Monday. The rand is now down 21.77% to the dollar so far in 2020, according to Infront data.
Chart of the Week:
The chart above shows the PE10 (PE10 = Price / Average (trailing 10-year average of earnings)) valuation indicator for the major global equity regions: U.S., Emerging Markets (“EM”), and Developed Markets excluding U.S. (DM Ex-US). U.S. equity valuations have returned to more attractive levels, with DM Ex-US and EM especially looking attractive in terms of the PE10 indicator. It’s important to note that this valuation metric is only one piece of an investment decision.
Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. We recommend investors should stay properly diversified across a variety of asset classes and that their financial plan supports their long-term goals, time horizon and tolerance for risk.
At Strategiq Capital we have a robust Business Continuity Program to ensure the safety and security of our staff and the continuation of business operations. Some of these measures include travel restrictions, visitor protocols, increased use of alternative communication methods (e.g. video conferencing) and encouraging staff to work remotely as appropriate. Against the rapidly changing COVID-19 outbreak backdrop, we remain focused on our clients’ well-being and maintaining business continuity.
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The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any Strategiq product. Strategiq Capital is an authorised financial services provider (FSP 46624).